Jordan Thaeler makes excellent points against the POS App store in his recent article, POS App Stores Don’t Work, So Shut Up.
While his article focuses on POS App stores, the terminal App store model is now being floated by leading terminal companies. Like the POS App store, a terminal App store is also a bad idea for the terminal company and its independent resellers (ISOs), primarily because of channel conflict and commoditization of the value added product (or App in this case).
Integrating with POS companies as Thaeler addresses was a huge challenge. There were just too many thousands of them and most did not have the bandwidth to work with third parties. But with EMV, many POS companies are getting out of payments, leaving a manageable number of terminal companies to partner with (especially for third party developers focused on payment linking).
ISOs today are looking for value added solutions like card-linked loyalty, because payments have been commoditized, resulting in 20% attrition and vastly reduced processing revenues. I applaud the terminal companies opening up of APIs to third-party firms to develop software on these terminals. They say it is coming just as soon as they free up resources from EMV. I boo the idea that the way to sell these third party value added solutions is direct to the merchant on some sort of Merchant Terminal App store, for all of Thaeler’s reasons and more.
When comparing the consumer Apple App store to a POS App store, Thaeler wisely observes: “The biggest distinction, however, is that businesses do not do self-discovery.” Is a terminal company expecting the merchant to go through a list of Apps and make a selection on its own? If the answer is yes, then that spells the end of the terminal company’s ISO channel. If ISOs are to exist, they need to add value and make money.
A low fidelity self help product like Square expect its merchants to figure out the Square product for itself. Copying Square’s self help model with a self help Terminal App store does not mesh with the current Terminal/ISO reseller relationship. Today, terminal companies leverage thousands of independent resellers to distribute its terminals to millions of SMBs. Terminals are more secure and can do more than a product like Square, and as a result require a human touch to sell, set-up, and support.
If these terminal companies allow merchants direct access to dozens of competing loyalty programs in an App store for example, isn’t that the definition of Channel Conflict? “Channel conflict occurs when manufacturers (brands) disintermediate their channel partners, such as distributors, retailers, dealers, and sales representatives, by selling their products directly to consumers through general marketing methods and/or over the Internet.” (If a Terminal App store self help model is to be used, then it should be entirely self help, like Square. You can’t have it both ways.) In addition, the numerosity of loyalty programs will result in a price war to the bottom. This channel conflict and commoditization will eliminate profits for ISOs, the third party developer, and the terminal company.
An ISO agent in effect is a consultant, expert in payments, and soon to be expert in card-linked loyalty and promotions. The ISOs, exclusively, should be able to pick and choose what terminal integrated value added products they want to resell. Only the ISOs should be able to peruse an App store, and pick the products it wants to sell and differentiate from its competition.
These Apps on a terminal are not going to sell themselves. Let the ISO excel at what it does in defining customized solutions for its customers and sell these value-added terminal integrated solutions to its own customers; its merchants.